Definitions under the Companies Act, 2013- SERIES I

Definitions under the Companies Act, 2013- SERIES I

The Ministry has notified Sec 2 which pertains to “Definitions” on 12.09.2013. There are about 95 definitions under the Companies Act, 2013, some of which have become effective from 01.04.2014. The Rules for certain definitions were published on 27.03.2014 and which will come in to force from the date of their publication in the official gazette as per the Companies (Specification of definitions details) Rules, 2014. This article aims to analyse certain important definitions under the companies act,2013. 

SECTION 2(6) -ASSOCIATE COMPANY:

Meaning: “Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.”

Explanation: For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;

The Term associate company was not defined under the earlier act. In the new act the Relevance and the impact of companies having associate company would be of high importance as the company having an associate have to comply by giving every details of the associate company also.

IMPACT/RELEVANCE OF  AN ASSOCIATE COMPANY :

SEC 2(76)(viii)- The Definition of Related Party includes “associate company” also.

Sec 188- Related Party Transactions- Under Section 188 of the Companies Act,2013,  if the company has an transaction with the associate company it needs to report on it.

SEC 92- Annual Return:  The Company needs to give the complete particulars of the associate company as detailed in the section in relation to shares, debentures, directors , KMP, remuneration of directors and KMP, the compliances and disclosures etc., The Company needs to file a return and also keep registers on the details mentioned above.

Sec 129(3)-Consolidation of Accounts: The Company needs to consolidate the accounts of associate companies as the definition of subsidiary includes associate company also as specified under the explanation given under the section.

Under Rule 8(1) of the Companies (Accounts) Rules, 2014: The Board’s Report shall be prepared based on the stand alone financial statements of the company and the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented.

In the Statement pursuant to Section 129 (3) of the Companies Act, 2013 relating to Associate Companies  and Joint Ventures , The following disclosures must be made:

a)       Name of Associates/Joint Ventures,

b)       Latest audited Balance Sheet Date,

c)       Number Shares of Associate/Joint Ventures held by the company on the year end ,

d)      Amount of Investment in Associates/Joint Venture ,

e)       Extend of Holding % ,

f)       Description of how there is significant influence,

g)       Reason why the associate/joint venture is not consolidated , 

h)      Networth attributable to Shareholding as per latest audited Balance Sheet ,

i)        Profit / Loss for the year, Considered in Consolidation, Not Considered in Consolidation ,

j)        Names of associates or joint ventures which are yet to commence operations ,

k)       Names of associates or joint ventures which have been liquidated or sold during the year.

Beginning to be an associate company for any company will add to further compliances and additional reporting on their transactions.

The Catch Word is “ASSOCIATE COMPANIES = ADDITIONAL COMPLIANCES & DISCLOSURES”.

SECTION 2(7) -AUDITING STANDARDS:

Meaning : “It means the standards of auditing or any addendum thereto for companies or class of companies referred to in sub-section (10) of section 143;”

Until any auditing standards are notified, any standard or standards of auditing specified by the ICAI (Institute of Chartered Accountants of India) shall be deemed to be auditing standard.

Even though the duty to comply with the auditing standards rest with the auditor, the Company Secretaries also needs to understand the implications of the auditing standard which might be applicable to any company.

AUDITING STANDARDS WHICH MAY BE OF RELEVANCE:

The SA 240 (AAS 4) : “ The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements” .

SA 250 (AAS 21): Consideration of Laws and Regulations in an Audit of Financial Statements.

SA 260(AAS 27): Communications of Audit Matters with Those Charged with Governance.

SA 550 (AAS 23): Related Parties.

SA 700 (AAS 28): The Auditor’s Report on Financial Statements.

Under  the provisions of sec 143 (12) of the Companies Act,2013 and Rule 13 of Companies (Audit and Auditors) Rules,2014 with regard to reporting of frauds by auditor, the power and duties of auditor specified under this section is also applicable to the company secretary, the Section also mandates such auditors to comply with the auditing standards. Therefore, the duty is also cast on a Secretarial Auditor who should conduct the audit with reasonable diligence and care and as per the Auditing Standards prescribed by ICAI & as per the Secretarial Standards prescribed by ICSI from time to time.

The Catch word is “AUDITING STANDARDS = MORE ADVISORY STANDARDS AND MORE RESPONSIBILITY STANDARDS”

A =           Accounting & Auditing Standards

C =          Cost Accounting Standards

S  =          Secretarial Standards

                          

These are my personal views and interpretation on the above subject matter. however, professional or other readers views are solicited.

DEFINITIONS SERIES To BE CONTINUED……

-M.SUNDAR A.C.S

Related Party Transactions - Compliance & Disclosures Special...

Related Party Transactions - Compliance & Disclosures Special... 
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Related party transactions : When to make disclosures

Criteria for Determination of Disclosure

Trigger limit....

Registers to be maintained...

Please read... 

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Related Party Transactions-Series III-

Disclosing the Disclosures

Sundar, Co. Secy, Southern Spinners & Processors, Chennai 

The Disclosures of interest by a director is dealt under Sec 184 of the Companies Act,2013. The section cast a duty on directors to disclose their interest in a contract/arrangement at the meeting at which such contract/arrangement is being discussed.

When to make the disclosure:

Ø  First Board Meeting in which he participates as director.

Ø  First Board Meeting in Every Financial Year.

Ø  Whenever there is a change in the earlier disclosures in the subsequent Board Meeting.

He has to disclose his “concern or interest” and his shareholding in any of the below :

1)      Company

2)      Bodies Corporate

3)      Firms

4)      Association of Individuals 

Criteria for Determination of Disclosure:

Ø  “Concerned” or “Interested” in a contract or arrangement or proposed contract or arrangement either directly or indirectly.

Trigger Limit for Disclosure :

Ø  Holding 2% shareholding in a body corporate along with any other director , or is a promoter, manager, chief executive officer of that body corporate.

Ø  With a firm or other entity in which such director is a partner, owner or member as the case may be.

Format for Disclosure:

As per draft rule 12.7 published on 09.09.2013, every director shall disclose his concern or interest in Form No.12.1.

  

Notice given by directors to be kept and preserved for 8 years at the registered office. It shall be at the custody of Company Secretary or any other person authorized by the board for the purpose.

Catch Word

Ø  “Interested Directors” as per Sec 2(49) of the companies act,2013 (notified on 12.09.2013 by MCA) means a Director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

The word “Interested” in sec 184 should be read in line with the new definition under the new Act. So the Contract and arrangements in which he is interested or concerned by himself or any of the persons mentioned above shall be construed for determining the interest of a director in a contract or arrangement and he shall have the responsibility to disclose his concern or interest in such contract or arrangement.

Contract or arrangement entered into by a company without disclosure or with participation by a Director who is concerned or interested shall be voidable at the option of the company. The provisions of this section is not applicable, if any of the Directors of the one company or two or more of them holds or hold  not more than 2% of the paid-share capital in the other company.

Penalty:

Non-Compliance attracts Imprisonment for a term of 1 Year or fine not less than Rs.50,000 –Rs.1,00,000 or both.

Registers to be maintained:

Registers to be maintained as per Draft Rule 12.7 published on 09.09.2013 in Form 12.4 for entering the particulars of all contracts or arrangements as specified under Sec 184(2) and Sec 188 and shall be placed at board meeting and signed by all directors present at the meeting. Every Director or KMP shall, within a period of 30 days of his appointment or relinquishment of, his office, disclose to the company their concern or interest in that company. The Register shall also be produced at every annual general meeting of the company and shall remain open and accessible to any person having the right to attend the meeting. A Proxy is entitled to inspect the register. The company needs to provide extracts of such register to a member on request within 7 days from the date of his request for a fee prescribed in the Articles but not exceeding Rs.10 per page.

Conclusion:

There were considerable variations in RPT-related disclosure among companies, which have made the regulators to think and bring in some broad structure, clarity and transparency in the reporting requirements. The Only question is the self conscience in disclosing or the willingness to disclose the related party transactions which needs to be improved in order to bring in more transparency in the reporting requirements. This will in turn bring in better corporate governance among the organisations to be relied upon by its stakeholders and shareholders at large.

These are my personal views and interpretation on the above subject matter. however, professional or other readers views are solicited.

rELATED PARTY SERIES CONCLUDED.

Preference shares under New Cos Act - 19 FAQ You need to know..

Preference shares under Cos Act 2013 - 19 FAQ You need to know.. 

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Conditions to be complied with before issuing Preference shares..

Redemption of shares after 30 years is possible now !

What is the kind of shares that can not be redeemed?

Register to be maintained for Preference shares.. 
Please read...- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PREFERENCE SHARES AS PER COMPANIES ACT 2013

There are two kinds of share capital in a company limited by shares, viz.  

i) Equity share capital; and              

ii) Preference share capital.

An analysis on the provisions relating to preference shares, as per Companies Act 2013, is being made below on a question and answer format.

1. Which section defines preference share capital in the Companies Act 2013?

Explanation to section 43(b) defines preference share capital.

2.  What is preference share capital?

Preference share capital means that part of the issued share capital of the company which carries or would carry a preferential right with respect to –

a)      Payment of dividend

b)     Repayment of the amount of the share capital paid-up or deemed to have been paid up

3.  Is there any additional rights attached to preference share capital?

In addition to their preferential rights, the following rights are also attached to the preference share capital.

 In  respect of dividend -  It has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right.

 In respect of capital – It has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.

4. Whether preference shares be issued on irredeemable basis?

No company shall issue any preference shares which are irredeemable.

5.  What are the conditions  to be complied with before issuing preference shares?

a) Articles of Association must authorize to issue preference shares

b) Approval of members is sought by way of special resolution in the general meeting

c) At the time of issue of preference shares,

- there should not subsist default in the redemption of preference shares issued either before or after the commencement of 2013 Act.

- no payment of dividend due on any preference shares

6. What are the regulations that are to be included in the Articles of Association of a company, which intends to issue preference shares?

The regulations in respect of the following matters relating to preference shares are to be included:

a)      Priority with respect to payment of dividend or repayment of capital vis-à-vis equity shares;

b)     Participation in surplus dividend;

c)      Participation in surplus assets and profits, on winding up which may remain after the entire capital has been repaid;

d)     Payment of dividend on cumulative or non-cumulative basis;

e)      Conversion of preference shares into equity shares;

f)       Voting rights;

g)      Redemption of preference shares.

7. What are the minimum details that are required to be included in the explanatory statement to be annexed to the notice of the general meeting for issue of preference shares?

The following are required to be included in the explanatory statement.

a)      Size of the issue and number of preference shares to be issued and nominal value of each share;

b)     Nature of such shares viz. cumulative or non-cumulative, participating or non-participating, convertible or non-convertible.

c)      Objectives of the issue.

d)     Manner of issue of shares.

e)      Price at which such shares are proposed to be issued.

f)       Basis on which the price has been arrived at.

g)      Terms of issue, including terms and rate of dividend on each share, premium etc.

h)     Terms of conversion, if convertible.

i)       Terms of redemption, including the tenure of redemption, redemption of shares at premium

j)       Manner and modes of redemption.

k)     Current shareholding pattern of the company.

l)       Expected dilution in equity share capital upon conversion of preference shares.

8. What is the maximum period upto which a company limited by shares, can issue redeemable preference shares?

Not exceeding 20 years from the date of issue.

9. Whether any register has to be maintained?

Yes, Register of Members maintained under section 88 shall contain the particulars in respect of such preference shareholders.

10. On what terms a company may redeem its preference shares?

A company may redeem its preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders under section 48 of the Act.

11. Whether there is any exemption from issuing shares on redeemable basis for a period exceeding 20 years?

A company may issue preference shares for a period exceeding 20 years but not exceeding 30 years for infrastructure projects (Specified in Schedule VI).

However, it is subject to redemption of minimum 10% of such preference shares per year from the twenty first year onwards or earlier, on proportionate basis, at the option of the preference shareholders.

12. What are the sources for redemption of preference shares?

Redemption of preference shares shall be made only from the following;

i)  Out of the profits of the company which would otherwise available for dividend.

ii) Out of the proceeds of a fresh issue of shares made for the purpose of such redemption.

13.  Which shares shall not be redeemed?

Partly paid up shares shall not be redeemed.

14.  When shares are redeemed out of profits, what is to be done?

A sum equal to the nominal amount of the shares to be redeemed is to be transferred to a reserve called “Capital Redemption Reserve”.

15. The premium on redemption shall be paid out of which resources?

In case of such class of companies as may be prescribed and whose financial statements comply with the accounting standards.

i) Premium payable on redemption shall be provided out of the profits of the company, before the shares are redeemed.

ii) Premium payable on redemption of any preference shares issued on or before the commencement of 2013 Act, shall be provided out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed.

16. What is the position of a company when it is unable to redeem any preference shares?

When a company is unable to redeem any preference shares, it can issue further redeemable preference shares equal to the amount due, including the dividend thereon subject to the following conditions;

i) With the consent of the preference shareholders holding three-fourths in value; and

ii) With the approval of the Tribunal on a petition made by it in this behalf.

17.  What would be the status of unredeemed preference shares?

On the issue of further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.

18. What happen to the preference shareholders who are dissenting to further issue of redeemable preference shares?

The Tribunal shall, while giving approval, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares.

19. For what purpose Capital Redemption Reserve can be utilized?

Capital Redemption Reserve account may be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.

CS Balaji G

Company Secretary

Relatives A Perspective under CA,2013

Relative.. who is covered & who is not covered in Companies Act 2013?

Relative under Accounting Standard & Companies Act 2013..

Spouse included now under "Relatives"

Please read...

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Relatives A Perspective under CA,2013

The Relative definition is laid down under Sec 2 (77) of the new act.

A Chart depicting the relative definition as defined under Sec 2 (77)(iii) and their flow of relations:

Table showing comparison of ‘Relative’ Definitions under Companies Act,1956, Companies Act,2013 and Accounting Standard -18 (AS-18).

Particulars	Companies Act,1956	Companies Act,2013	Accounting Standard 18 (AS-18)
Defined Under	Defined under Section 2(41) and Section 6 and Schedule IA of the Act	Defined under Section 2(77) and draft rules notified on 09.09.2013 with reference to Section 2(77) (iii))	Defined in Para 10.9 under Definitions.
List of Relatives	Schedule IA List of Relative 1. Father 2. Mother (including step-mother) 3. Son (including step-son) 4. Son’s wife 5. Daughter (including step-daughter) 6. Father’s father 7. Father’s mother 8. Mother’s mother 9. Mother’s father 10. Son’s son 11. Son’s son’s wife 12. Son’s daughter 13. Son’s daughter’s husband 14. Daughter’s husband 15. Daughter’s son 16. Daughter’s son’s wife 17. Daughter’s daughter 18. Daughter’s daughter’s husband 19. Brother (including step-brother) 20. Brother’s wife 21. Sister (including step sister) 22. Sister’s husband	For the purposes of sub-clause (iii) of sub-section (77) of section 2, a person shall be deemed to be the relative of another, if he or she is related to another in the following manner: (1) Spouse (2) Father (including step-father) (3) Father’s father (4) Father’s mother (5) Mother ( including step-mother) (6) Mother’s mother (7) Mother’s father (8) Son ( including step-son) (9) Son’s wife (10) Son’s son (11) Son’s daughter (12) Daughter (including step-daughter) (13) Daughter’s husband (14) Brother ( including step-brother) (15) Sister (including step-sister)	Relative – in relation to an individual, means the 1.spouse 2.son 3.daughter 4.brother 5.sister 6.father and 7.mother who may be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise.
Who are Excluded		1. Son’s son’s wife 2.Son’s daughter’s husband 3.Daughter’s son 4.Daughter’s son’s wife 5.Daughter’s daughter 6.Daughter’s daughter’s husband 7.Brother’s wife 8.Sister’s husband

The Current definition under the new act has reduced the number of relatives to a minimum number.  The term “Spouse” has been additionally included in the definition in the Companies Act,2013, which was not earlier mentioned in the list of relatives in the Schedule IA of the Companies Act,1956.

From the Angle of Accounting Standard:

The term “Relatives” are included in the para 3(c ) and (d) of the Accounting Standard-18 with reference to “Related Party Transactions”

c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual;

d) key management personnel and relatives of such personnel;

From the Angle of Companies Act,2013:

The term “Relatives” have been made wider to include many persons inside the ambit of “Related Party Transactions”. Under Sec 2(76) “Related Party” with reference to a company means-

(i)      a director or his relative;

(ii)    a key managerial personnel or his relative;

(iii)   a firm, in which a director, manager or his relative is a partner;

(iv)  a public company in which a director or manager is a director or holds along with his relatives, more than two per cent of its paid-up share capital;

(ix) a director or key managerial personnel of the holding, subsidiary or associate company of such company or his relative; (as per draft rules notified by MCA on 09.09.2013).

Conclusion:

Now you can count the number of “Relatives” who will be counted for any “Related Party Transactions”, the inclusive definition is wider and the scope is enlarged to cover the transactions made between holding companies, subsidiaries, joint ventures and associate companies also. These changes are made in order to plug the loop holes in diversion of funds. It is only time, to see how far these provisions will be effective once it gets notified.

-M.Sundar, A.C.S

These are my personal views and interpretation on the above subject matter. however, professional or other readers views  are solicited.

Series…III  to be continued